New Zealand PM reacts to dairy giant's product contamination

New Zealand Prime Minister John Key has accused the country's dairy giant of delaying sounding the alarm over products tainted with a potentially fatal bug.

Fonterra recently revealed a whey product used to make infant formula and sports drinks had been contaminated with a bacteria that can cause the potentially fatal paralytic illness, botulism.

Mr Key says he is concerned about the impact on farm-reliant New Zealand's reputation as a supplier of clean, green dairy products, particularly in Asia where its infant formula has long been regarded as gold standard.

"You would have thought that for a business where its top business is essentially based around consumer confidence, food safety and the quality of its products, that they are risks that you wouldn't take," Mr Key said.

"I'm a bit staggered that in May of 2012, when this whey was produced, that it (Fonterra) did show something in its testing, but clearly not something that was of concern to the company because they allowed it to go out."

Mr Key says the government has a team of more than 60 personnel working to contain the fallout from the contamination and would eventually seek an examination of how Fonterra had handled the crisis.

The contaminated whey has been exported to countries including Australia, China, Malaysia, Saudi Arabia, Thailand and Vietnam.

Fonterra says there have been no reports of illness linked to consumption of the tainted product, which contains the bacteria Clostridium bolulinium.

The company has blamed the contamination on a dirty pipe at a North Island processing plant.

New Zealand is the world's largest dairy exporter and the NZ$10.4 billion ($8.1 billion) sector accounts for about 25 percent of its exports.

Following the revelation, the Fonterra Shareholders' Fund fell 8.7 per cent at the open on the New Zealand stock exchange as investors sent the company's shares tumbling.

China's reaction

The revelation prompted immediate action from China, a major market for New Zealand's dairy products.

New Zealand officials say China has blocked all imports of its milk powder.

China correspondent Huey Fern Tay, who has been following the news from Beijing, says Fonterra's revelation on the contamination of its products has seen both Chinese authorities and locals react accordingly.

"This piece of news has been a big thing over here...Chinese parents, they really look to imported baby milk formula for feeding the kids," she said.

"China consumer quality watchdog has also warned that three bags of a particular brand of baby milk formula that is not officially imported into China may also have been contaminated.

"That's very telling that a China's consumer watchdog has issued this warning because Chinese parents, they find other ways and means to bring in the baby milk formula from overseas," she said.

She says there's still a lack of trust towards locally made products in China.

"They generally lack trust in the system to keep effective checks and balances on things," she said.

"It's really sad because it has been 5 years since the melamine scandal...it was such a huge scandal, it really shook confidence of Chinese parents over here.

"Even though the Chinese officials have come out to say time and time again it's safe, we've improved our standards, consumers are still very weary and they still would rather pay a lot more to buy imported baby milk formula."